Written by: Israel Investor Newsletter | June 6, 2007
By Douglas Goldstein, CFP
www.IsraelNewsletter.com
Follow up to IsraelNewsletter.com’s recent article on Elbit:
Following last week’s announcement that Elbit Systems (ESLT) will be supplying Lightweight Thermal Imagers to the Canadian and Israeli Armed Forces as well as other customers worldwide, at a total value of approximately $50 million, the company just had another military sale: They’re selling almost $19 million of ruggedized computers to the U.S. Marines. The sale is going through Talla-Tech, a wholly-owned U.S. subsidiary of Tadiran Communications, which is a wholly-owned subsidiary of Elbit Systems.
The Marines order is for small hand-held computers to provide situational awareness to the forces. It chose the Talla-Tech Rugged Personal Digital Assistant (RPDA-57). The RPDA-57 is based on the Microsoft (MSFT) Windows CE and Microsoft Windows Mobile operating system, Elbit Systems said.
Though Elbit’s rate of revenue growth has slowed slightly year-over-year, it is growing its net income at a rate 10% higher than last year (as per Q1 financials). And compared to some of its American competitors like General Dynamics (GD) and Northrop Grumman (NOC), Elbit’s rate of increase in revenue has been over 20%, compared with their ~14% and ~4% respectively. On the other hand, with a trailing P/E of 25, it’s trading at a hefty premium to the others, whose P/E is in the mid to high teens. Having a lot of cash on hand, though, the company should have some staying power.
With the war on terror and potential conflict with Iran, the defense industry is poised to continue its explosive growth. Elbit should be able to capitalize on the opportunities.
Disclosure: Author’s fund is long ESLT as of 6/06/07.
Douglas Goldstein is the Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email doug@profile-financial.com.
Written by: Aaron Katsman | June 6, 2007
By Aaron Katsman
www.IsraelNewsletter.com
This weekend’s news of the FBI foiling a terror plot to blow up JFK airport has again thrust the issue of homeland security into the headlines.
Magal Security Systems (MAGS) is a trailblazer that develops security systems to detect and deter human intrusion for both civilian and military markets. Magal specializes in securing all types of sensitive areas, and today announced a $1.8 million deal to help secure the Ashdod Port as well as a border crossing terminal, both in Israel. Magal is a global company with product installations in over 70 countries, protecting borders, airports, prisons, even nuclear power plants, against both theft and terrorism.
The company has started to realize its potential and the proof is in Q1 numbers. Revenue increased 12% over the comparable quarter in ’06 and net income rose to $298,000, or 3 cents per share, from $149,000, or 1 cent per share, a year earlier. What makes these numbers even more impressive is that expenses almost doubled over last year’s numbers due to the strength in the Israeli shekel. As I have mentioned previously, I believe that we are going to see the US dollar start to strengthen against the Shekel. This will give an added boost to Magal’s numbers. Keep in mind that the 1st quarter has been traditionally the weakest for the company, and the outlook looks promising. In addition, the company forecasted that full year results will be ahead of last years in all respects.
Magal should be looked at not just as a play in the event of a terrorist attack, but on its own merits. Fundamentally, the company has begun executing the business model, and is an intriguing investment for the long term.
(Corrected as of 6/6/07)
Disclosure: Author’s fund is long MAGS as of 6/04/07.
Please see our Disclaimer HERE.
Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
Written by: Zack Miller | June 5, 2007
Alon USA (ALJ) on the prowl for more refinery assets in the US, according to the Reuters article. Alon USA President and Chief Executive Officer Jeff Morris told the Reuters Global Energy Summit in New York that his company would be interested in buying certain refineries, citing those in the Rockies and the Midwest. Morris also said refineries that processed the cheaper priced heavy crudes were more appealing than those that ran the lighter, sweeter — and more expensive — grades. See Aaron Katsman’s previous article on how the summer driving season may impact ALJ.
Elbit Systems (ESLT) seems to have won a deal from the US Marines for ruggedized computers. The Marines $18.5MM order is for small hand-held computers to provide situational awareness to the forces. Haaretz reports the deal is a relatively small one in a pipeline that measures $3.8 Billion at the end of Q1 2007. Read IsraelNewsletter.com’s recent article on Elbit Systems (War Brings Boom to Elbit Systems).
Reuters reports that Yediot Achronot uncovers news that Tower Semiconductor (TSEM) is in talks to buy $80MM worth of capital equipment from AMD (AMD). Bond offering is also on the way.
Written by: Aaron Katsman | June 5, 2007
By Aaron Katsman
www.IsraelNewsletter.com
Continuing on yesterdays theme of security, it’s no question that homeland security and the war on terror grab all the headlines; but telecom fraud has been estimated to cost operators between 3-8% of annual revenues. Leading the war against this type of fraud is a small Israeli company called ECtel (ECTX). ECtel developed a fraud management solution for fixed line, wireless and next generation communication service providers. They have gained significant traction, and their solutions are deployed at over 75 operators worldwide.
Focusing much of their attention in Eastern Europe, where telecom fraud is a problem that is getting worse by the day, the company looks to be well positioned to profit.
Unfortunately, though, for investors, profit is the name of the game and it’s something ECtel has a problem delivering. Revenues in the 1st quarter fell 46% from comparable quarter in ’06. Orders from the former Soviet Union were slower than anticipated, and a large order from a large existing European customer was delayed. In addition, there was a delay in getting paid from certain projects.
With this financial background, why would an investor bother looking at making an investment in ECtel? The company has cash and cash equivalents of $36.1 million, and the current market cap is about $50 million. This certainly provides a cushion as to how low the stock can drop. More interesting are the rumors I have been hearing from people in the local telecom business. Hewlett- Packard (HPQ) has a similar fraud prevention product, but they are having all kinds of troubles penetrating the market and have only 3 deployments until now. It’s well-known that HP has acquired numerous Israeli companies, so for many reasons, this makes sense. Oracle (ORCL) and IBM, could also be potential suitors as they are always trying to update their product suite, as I mentioned in a previous blog.
Disclosure: Author’s fund has no position in ECTX as of 6/5/07.
Please see our Disclaimer HERE.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
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